feasibility analysis for entrepreneur lec 2
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Entrepreneurship and small business: Feasibility Analysis
Entrepreneurship and small business:Feasibility AnalysisMuhammad Shafiqforshaf@gmail.comhttp://www.slideshare.net/forshafBook references: Entrepreneurship by Bruce R. BarringerEntrepreneurship by Hisrich
What Is Feasibility Analysis?Feasibility AnalysisFeasibility analysis is the process of determining whether a business idea is viable. It is the preliminary evaluation of a business idea, conducted for the purpose of determining whether the idea is worth pursuing.Feasibility analysis takes the guesswork (to a certain degree) out of a business launch, and provides an entrepreneur with a more secure notion that a business idea is feasible or viable.
Timing of Feasibility AnalysisThe proper time to conduct a feasibility analysis is early in thinking through the prospects for a new business.The thought is to screen ideas before a lot of resources are spent on themComponents of a Properly Conducted Feasibility AnalysisA properly conducted feasibility analysis includes four separate components.When To Conduct a Feasibility Analysis
Outline for a Comprehensive Feasibility Analysis
Role of feasibility analysis in developing business ideas.
Does it make sense? Is it reasonable? Is it something consumers will get excited about?Does it take advantage of an environmental trend, solve a problem, or take advantage of a gap in the marketplace? Is this a good time to introduce the product or service to the market? Are there any fatal flaws in the product or services basic design or concept? First, ask the following questions to determine the basic appeal of the product or service.
1. Product/Service Feasibility AnalysisProduct/Service Feasibility AnalysisIs an assessment of the overall appeal of the product or service being proposed.The idea is that before a prospective firm rushes a product or service into development, it should be confident that the product or service is what its prospective customers want.The two components of a product/service feasibility analysis are:
Product/Service DesirabilityProduct/Service Demand
Second, Administer a Concept TestA concept statement should be developed.A concept statement is a one page description of a business, that is distributed to people who are asked to provide feedback on the potential of the business idea.The feedback will hopefully provide the entrepreneurA sense of the viability or the product or service idea.Suggestions for how the idea can be strengthened or tweaked before proceeding further.
Developing a Business Concept In developing a business concept, consider the features and benefits your proposed product or service will offer.
features distinctive aspects, qualities, or characteristics of a product or service benefits things that promote or enhance the value of a product or a service to the customer
When developing a business concept an entrepreneur must ask the following questions:
What is the product or service being offered Who is the customer? What is the benefit that is being provided? How will the benefit be delivered to the customer?
Preparing a Concept StatementInformation to IncludeA description of the product or service being offered.The intended target market.The benefits of the product or service.A description of how the product will be positioned relative to similar ones in the market.A description of how the product or service will be sold and distributed.Information about the founder or founders of the firm.
New Venture Fitness Drinks Concept Statement
Their are three steps to assessing product/service demand.Step 1: Administer a Buying Intentions Survey- an instrument that is used to gauge customer interest in a product or service.Step 2: Conduct library, Internet, and Gumshoe research Step 3: Usability Testing Usability tests are sometimes called user tests, beta tests, or field trials, depending on the circumstances involved.PrototypeVirtual PrototypeStandard Test MarketControlled Test Market
One of the most effective things an entrepreneur can do to conduct a thorough product/service feasibility analysis is to hit the streets and talk to potential customers.
Product/Service Feasibility Analysis in Action
Role of feasibility analysis in the development of successful business ideas at Activision (an electronic games company)
The Activision Green Light Process
2. Industry/Target Market Feasibility Analysis
It is an assessment of the overall appeal of the industry and the target market for the proposed business. An industry is a group of firms producing a similar product or service. A firms target market is the limited portion of the industry it plans to go after.For industry/market feasibility analysis, there are three primary issues that a proposed business should consider:Industry attractiveness, market timeliness, and the identification of a niche market.
Industries vary in terms of their overall attractiveness.In general, the most attractive industries have the characteristics depicted on the next slide.Particularly importantthe degree to which environmental and business trends are moving in favor rather than against the industry .
In addition to evaluating an industrys growth potential, a new venture will want to know more about the industry it plans to enter.This can be accomplished through both primary and secondary research, as explained in the next slide.
Role of Primary and Secondary Research in Investigating Industry Attractiveness
Type of ResearchHow It Is ConductedPrimary researchSecondary researchThis is research that is original and is collected by the entrepreneur. In assessing the attractiveness of a new market, this typically involves an entrepreneur talking to potential customers and key industry participants.This is research that probes data that are already collected. Examples of where this data might come from are: industry-related publications, government statistics, competitors Web sites, and industry reports from research firms like Forrester Research.
Market Timeliness Considerations
Nature of Product or Service IntroductionImprovement on something already available in the marketplaceBreakthrough new product or service, which should establish a new market segmentMajor Considerations Is the window of opportunity open or closed? Is now a good time for a new market entrant (i.e. are customers buying, are industry incumbents making money?) Should we try to capture a first-mover advantage or not?
First mover advantage orSecond-mover advantage?22
Entry Strategy For New Entry ExploitationFirst Mover- Launching new to the world product or service or at least new to the market. (Pioneer advantage)First mover faces less competitive rivalryFirst movers can secure important channelsFirst movers are better positioned to satisfy customersAbove-average returnsCustomer loyaltyAn early hold on market share
Disadvantages of Being FirstDemand Uncertainty: Considerable difficulty in accurately estimating the potential size of the market, how fast it will grow, and the key dimensions along which it will grow.Technological Uncertainty: Considerable difficulty in accurately assessing whether the technology will perform and alternate technologies will emerge and leapfrog (game) over current technologies.Uncertainty of Customers: Customers may have considerable difficulty in accurately assessing whether the new product or service provides value for them.
Second Mover Responds to first mover, typically through imitationIs more cautious than first moversTends to study customer reactions to product innovationsTends to learn from the mistakes of first movers, reducing its risksTakes advantage of time to develop processes and technologies that are more efficient than first movers, reducing its costsReduce the entrepreneurs costs associated with R&D.Reduce customer uncertainty over the firm.
25Characteristics of second movers compared to first movers.
Late Mover Responds to market opportunities only after considerable time has elapsed since first and second movers have taken actionHas substantially reduced risks and returns
26Characteristics of late movers compared to first and second movers.
New Product Adopters GroupsInnovators- Venturesome, they try new ideas at some risksEarly adopters- they adopt new ideas early but carefullyEarly majority- Adopt new ideas before average personLate majority- Adopt new idea after a majority of people tried it.Laggards- people suspicious to changes and adopt new product when it becomes some thing of a tradition itself (essential part of life)
Identification of a Niche MarketNiches do not 'exist' but are 'created' by identifying needs, wants, and requirements that are being addressed poorly or not at all by other firms.For a new firm, selling to a niche market makes sense for at least two reasons. It allows a firm to establish itself within an industry without competing against major competitors head on.A niche strategy allows a firm to focus on serving a specialized market very well instead of trying to be everything to everybody in a broad market, which is nearly impossible for a new entrant. Target Market AttractivenessThe challenge in identifying an attractive target market is to find a market thats large enough for the proposed business but is yet small enough to avoid attracting larger competitors.
Identification of a Niche Market
3. Organizational Feasibility AnalysisIt is s concern